No One Has Time For A Completely Free Market

The free market often sounds quite simple and straight forward. Consumers simply decide whether product A or B benefits them more and then choose accordingly. If the same or similar product is sold by shop A or B consumers simply choose whichever is cheaper, better quality or otherwise benefits them. It is easy and doesn’t require any complicated plan or someone telling consumers what is best for them, people simply decide themselves. This is the market as described by economists, politicians and writers, especially when they are trying to make a political point. After all, if the market is so simple and straight forward, why do we need the government interfering? All these rules and regulations only get in the way, surely it is better for everyone if we just leave the consumers to decide for themselves.

The road to Hell is paved with good intentions and although this sounds like a completely reasonable idea, it is completely unworkable in reality. As tempting as it is to simply remove regulations and let people figure it out for themselves, the free market is not simple and straight forward. It is an extremely complex mechanism that none of us fully understand. The biggest reason we shouldn’t remove regulations is because simply do not have the time.

Let me use an example. I once went to the shops to buy some bacon. In my economics classes this was always presented as a simple affair. I would just compare two types of bacon see which was better (in terms of price or quality) and choose whichever gave me the most utility. However, when I came to the aisle, to my surprise, I saw that there were 40 different types of bacon. There were different sizes, different brands, different parts of the pig etc. How was I supposed to know which was best? Perhaps I could give each one a taste test and rate them accordingly and devise a system that combines taste and price to calculate the most efficient option. But I would have to cook each piece identically with similar food in order to give a fair test and perform it more than once, to avoid the risk of getting an unusually good or bad piece. Needless to say this would be an enormously time consuming task that would take weeks (by which time need bacon products would probably be released) and no one has the time for.

2012-11-27 19.01.48
This was my choice of bacon in my local Tesco. 12 shelves with 40 different kinds of bacon

Yet this is only one product. Supermarkets contain thousands of products that all must be considered, compared and a decision made on them. I am a skinny lad with incredibly unimaginative tastes in food (I’ve never cooked myself a meal with more than three ingredients) who only shops for myself, yet a full shopping involves buying 30-40 goods. More imaginative people and those with families have even more decisions to make. Plus there is also all the other goods you decided not to buy, meaning that doing the shopping involves over a hundred decisions and hundreds of comparisons. All of this occurs in one supermarket but there are also a dozen others that you could go to instead (also containing hundreds or thousands of products) further multiplying the calculations that could be made. No human has the time or willingness to do a full and comprehensive comparison of all the economic costs and benefits.

So what do people do instead? Sometimes they just choose randomly. As an economics student it always struck me as odd that I was spend all day learning complex equations that supposedly related as to how consumers made their decisions and then randomly choose what to eat for dinner. Most times, people just buy the same product they did before. Or they’ll choose one with nice packaging or that they recently saw an ad for. I usually buy the cheapest.

Although, this might seem a bit obvious or even trivial, it has serious consequences. The core principle of the free market is that the invisible hand guides it to the most efficient outcome. It is assumed that consumers know what is best for themselves and act accordingly. Consumers buy the goods that benefit themselves the most, thereby rewarding the businesses that are most efficient and innovative. Consumers are supposed to avoid the inferior products, thereby punishing less efficient businesses, forcing them to improve or go bankrupt. Prices adjust in response to consumer actions and thereby guide the economy to the most efficient use of resources. However, if it is impossible for consumers to choose which is the best, then the system doesn’t work. Businesses that make shoddy goods can continue in business while innovative and efficient businesses can fail to succeed.

But if the goods are shoddy, why would people buy them a second time? Again this comes down to time and our brain. Honestly, a lot of the time I don’t remember what I bought last time or its quality. People don’t have the time or the patience to stand in the aisle, conjure up a list of all previous times they bought each brand and compare which satisfied them the most. The fact is that I’ve repeatedly made mistakes and not learned from them. Even if a product wasn’t good, that doesn’t mean the others are.

The worst part is that all these problems exist under the current system of regulation. Imagine if instead, we removed regulations and added even more calculations that must be made. So instead of the current system, where there is some of assurance that the workers who made your product had somewhat decent wages and working conditions (although globalisation is undermining this) minimum wages and labour laws were abolished. Now instead of just comparing the price and quality of the products, you also now have to compare whether or not they exploit their workers, to what extent and how much you care about this. Even getting this information would require every consumer to be something of an investigative journalist or at least very well informed on the labour conditions of every company they buy from.

Or consider environmental laws. It seems reasonable to leave this up to consumers and let them decide if they want to stop buying polluting products and such to organic and environmentally friendly. But every product has something of an environment footprint, which is very difficult for consumers to calculate and even harder to compute. Or imagine if consumers had to determine whether animals are treated sufficiently well without needless suffering before killed for food. Or if health laws were repealed and consumers themselves would decide whether their food was made in sufficiently sanitary conditions and free of disease. Or if the advertising rules were removed and consumers had to wade through company propaganda to figure out the truth about their products.

Some people say we should remove anti-discrimination laws and simply let consumers decide if they want to buy from racists. After all, who would buy from an openly racist shop? However, it can be very difficult to get information about the inner workings of a business, such as how they pay their workers and the ethnic, gender, religion breakdown etc. How is a consumer supposed to know whether the white male manager got his position due to his skills or identity? If a business has only a handful of black employees how is a consumer standing in a supermarket aisle supposed to know whether this is due to racism or a lack of qualified applicants? Nor is discrimination a clear cut issue. What if a business is positive towards ethnic minorities but not women? Or gives opportunities to people from disadvantaged backgrounds but won’t hire Muslims? What if they are discriminatory in favour of my people? (I once worked in an American company that only hired Irish people which certainly had advantages for me.)

So without regulations the already complicated decision of picking which bacon to buy, becomes exponentially more difficult. Now I have to compare the 40 or so brands based on their relative price, taste, quality, risk of disease, treatment of animals, environmental impact, working conditions, sanitary conditions, attitudes towards minorities and women, both in terms of willingness to hire, pay an equal wage and promote, nutrition, origin (people like to support local businesses), honesty (is this actually bacon?) and a dozen other factors I have probably forgotten. Needless to say your brain would melt if you tried to calculate all these factors (assuming you had all the information you needed), so instead people pick one or two that matter and ignore the others. This means that I’ll buy the cheapest, even if the workers aren’t treated well or the quality is shoddy. So contrary to what some would have you believe, consumers don’t have the power to compel businesses to act as they wish and the threat of switching brands merely means switching some disfavourable factors for others.

This is why regulation is actually helpful to consumers and simplifies life. This might sound odd and contrary to what you’ve always heard about regulations, so I’ll repeat it. Regulations simplify decisions. When I go to the supermarket, I know that the products have to meet some basic standards such as health & safety, environmental impact and working conditions. This means I don’t have to worry as much about it and reduces the number of factors by which I judge products. By standardising other factors, I am freed to focus mainly on price and quality, which makes comparison and competition much easier to determine. It also means this is where businesses have to compete instead of undercutting each other where consumers don’t see.

So contrary to what most people think, removing regulations would actually complicate, not simplify our life. No one has the time to make the endless calculations that are necessary for a completely free market to function.

56 thoughts on “No One Has Time For A Completely Free Market”

  1. Ah, you missed something. Time is definitely not a factor because in the theory of markets, consumers have perfect knowledge, that is we already know everything we need to make our decisions.

    Re “So what do people do instead? Sometimes they just choose randomly.” Never randomly! we choose the one that “looks good,” which is why companies spend so much money on packaging and arranging the bacon in the window is packages of bacon to show the meatiest part of the slices inside. Decisions are based upon appearance, even to the influence of advertisements. Adverts are made as visually attractive as possible so that an afterglow of “looking good” attaches to the product itself. This is why we wax a used car before selling it (even though the wax doesn’t enhance the value of the car) or stage a house using rented furniture (that will not be sold with the house) as a ploy in selling it.

    The main thesis of your point is obviously valid, from a rational point of view. It is sad that rationality doesn’t really come into it. It was you who taught me that advertising violates the theory of markets. If markets behaved the way it is claimed, advertising would be eschewed as much as “regulation” is now.

  2. “If markets behaved the way it is claimed, advertising would be eschewed as much as “regulation” is now.”
    What is your reasoning behind this? Not questioning it, just genuinely curious.

  3. A free market would not support 40 kinds of bacon.

    There aren’t actually 40 kinds of bacon. There are that many packages. The ingredients are often identical or mere permutations or combinations or variations of the same ingredients. They are made in the same factories.

    That is not the free market. That is the state market – selling you the same ol’ crap 40 ways to Sunday.

  4. Have you ever heard of UL, insurance companies, the division of labor, or Amazon Prime? Apparently, you haven’t. Often, the market can do the government’s work much more effectively. Look at Bitcoin, for example. Did a government invent that? No. And it’s the most efficient way to give something of value to an Internet-connected person not desiring to go through the USG-controlled payments system these days.

    “How is a consumer supposed to know whether the white male manager got his position due to his skills or identity?”

    This is a perfect demonstration of your fatal conceit. If consumers and investors can’t know a lot about a company’s discriminatory practices, then how can the government? You assume that somehow, firms and consumers can’t know a lot about the economy, but governments, through their omnipotent wisdom, can. Ever heard of the Flint water crisis? Christ, this post is terrible. Why aren’t you some kind of Communist, if you think government is so fantastic as to get insider knowledge beyond the reach of typical market participants? Serious question. The Soviet government made life a lot simpler for its consumers, believe me. You’re in Slovakia, aren’t you? Ask some people how your argument worked in a little thing called reality.

    This post isn’t even the everyday progressive’s psychological Communism. This is psychological totalitarianism.

    1. So criticising the market in any way makes me a Communist? If I have a single good word about the government, then I must love the Soviet Union? This is 2016, take your Red Scare nonsense elsewhere.

      It’s funny that you use Bitcoin as an example of market succeeding without government, despite the fact that Bitcoin has been a complete disaster.

      “If consumers and investors can’t know a lot about a company’s discriminatory practices, then how can the government? You assume that somehow, firms and consumers can’t know a lot about the economy, but governments, through their omnipotent wisdom, can.”

      How about you read my post again. If you actually read you might understand instead of just throwing insults. Let me explain. It is impossible for every consumer to personally check their food for risk of disease or read health reports for everything. However, the government can hire a health inspector to check the food. There’s no requirement for the government to be omnipotent or have magic powers. You should really try and expose yourself to other ideas more often and not be so closed minded.

      1. “So criticising the market in any way makes me a Communist?”

        -Did I allege that? No? So enough with such strawmen.

        “This is 2016, take your Red Scare nonsense elsewhere.”

        -No.

        “It’s funny that you use Bitcoin as an example of market succeeding without government, despite the fact that Bitcoin has been a complete disaster.”

        -In what sense? It’s become the de facto standard of online trade not regulated by governments, despite its founder never being found.

        “It is impossible for every consumer to personally check their food for risk of disease or read health reports for everything. However, the government can hire a health inspector to check the food.”

        -Sure. But can’t a private company do that as well?* We have a bunch of certificate authorities to encrypt the connections with and verify the identity of websites (for example, the NSA website is verified by GeoTrust, Inc.). This is one of the most important functions of the digital era. Would it be better if they were replaced with a single government-run certificate authority? Of course, if it mattered to the bottom line, it would be obvious for investors to hire a health inspector as well. The question is if it matters enough to the bottom line, and then the question becomes one of incentives, not superior information-gathering ability of governments. Though there are several ways you could have approached this subject from a pro-government perspective without being dismissed as a psychological totalitarian by me, you have not made a serious case here for your conclusions.

        “There’s no requirement for the government to be omnipotent or have magic powers.”

        -There is for your discrimination example. And though I have nothing against mandatory food safety inspections, the problem they’re solving is one of incentives, not imperfect information. If you had framed your argument in that manner (or some other, equally sensible one), this post wouldn’t be the non-starter that it is. The way the argument in your post is presently framed, it’s easily susceptible to my “The Soviet government made life a lot simpler for its consumers, believe me” critique.

        “You should really try and expose yourself to other ideas more often and not be so closed minded.”

        -I read your blog, don’t I? Shouldn’t that be a signal of my intellectual openness?

        1. So your first comment began by calling me a totalitarian Communist and your second by pretending you didn’t.

          Sure a private company could exist, but how do I trust it? If there are several, how do I know which one to go with? I could research them all, but then we are back to the problem of time. A company could hire a health inspector but their incentive is not to damage their employer.

          1. “So your first comment began by calling me a totalitarian Communist and your second by pretending you didn’t.”

            -I called you a psychological totalitarian and asked why you weren’t a Communist because of the specific arguments you made in this post, not just because you criticized the market.

            Yes, the question ultimately comes down to trust, and can only really be decided on a case-by-case basis. If it’s applied consistently on the side of the government, we’re back to Communism. You still haven’t answered my question about the Certificate Authority system.

      2. “the government can hire a health inspector to check the food. There’s no requirement for the government to be omnipotent or have magic powers.”
        Sure. Lots of people could hire a health inspector to check the food, including the affected business, or a consumer advocacy group. They’d be biased or self-interested, you say? They wouldn’t have the consumers’ interests at heart? Possibly, but you could say the same thing about a government health inspector. They have their own biases and self-interests. They don’t necessarily have the consumers’ interest at heart, either. You can’t just assume that government agents are neutral and unbiased.

        Businesses have an obvious incentive to attract customers by assuring them that their products are safe and trustworthy. Of course, people realize that businesses are biased, so if a business hires a reputable third party inspector to verify their products for the consumers. Is a product Kosher? There’s a label saying so, and that could be verified if need be. Did Good Housekeeping say a product is safe and trustorthy? There’s a Good Housekeeping Seal of Approval on it. Don’t trust the label? Contact Good Housekeeping and see if it’s true.

        If a government inspector says a product is safe and trustworthy, do you merely assume they’re to be believed *because* they’re with the government? How can you verify their reputation and trustworthiness? I’m not saying it can’t be done, but there’s no reason to assume a government inspector is a better assurance than a private third party inspector.

        1. Okay I think you’re missing my point. I’m not saying that private health inspectors are bad people or lack the right morals etc. It’s just that if they are paid by a private company they will benefit the private company. If they charge customers, many will not pay for this service. Nor does this solve the problem of consumers not have the time to find the most accurate information and form accurate decisions. I don’t support government regulation because I think government regulators are morally superior, but because they enforce a standard, therefore making it easier for consumers to make decisions and therefore make the market more efficient.

          1. Okay, I think you’re missing MY point. One, you’re merely assuming that government regulators are enforcing a standard that is beneficial to consumers. Prove it, or at least make a logical argument indicating that it does that. Something other than “because it’s the government”. Exactly how do you know that government regulation is actually making it easier for consumers?

            Two, private inspectors can be neutral and unbiased, and in fact, if they aren’t then it defeats the whole purpose of hiring them. Private businesses would seek private certification to reassure their customers of the safety of their product. If consumers don’t trust the private agency, then there’s no point in seeking their certification, so businesses would hire reputable agencies that are respected by consumers, and not agencies that are simply going to rubber stamp the business’ product or service. Do you trust Consumer Reports? Do you trust the Underwriter’s Laboratory? If you don’t, then their recommendations or certification mean nothing to you. If you do, then you can rely on them to make your purchasing decisions easier.

            1. “One, you’re merely assuming that government regulators are enforcing a standard that is beneficial to consumers. Prove it, or at least make a logical argument indicating that it does that.”

              What is your point? That you don’t believe the government rules are enforced? So that if there is a government minimum wage, you don’t believe that businesses are really paying their employees that much? What sort of proof would you accept that this government standard is being enforced?

              “Two, private inspectors can be neutral and unbiased, and in fact, if they aren’t then it defeats the whole purpose of hiring them.”

              It depends on who is hiring them.

              “Private businesses would seek private certification to reassure their customers of the safety of their product. If consumers don’t trust the private agency, then there’s no point in seeking their certification, so businesses would hire reputable agencies that are respected by consumers, and not agencies that are simply going to rubber stamp the business’ product or service.”

              My problem is that you are unable to distinguish theory from reality. Sure in theory honest people would make sure that consumers were fully informed and no businessman was dishonest. But reality has a tendency to ignore the wishes of philosophers. Tell me, how honest were businessmen in the 19th century before the advent of regulation? How many independent agencies were to inform consumers?

              Imagine you are a consumer and you see that some bacon has been approved by the Safe Food Company. A second brand has received a thumbs up from the Healthy Food Agency. A third is recommended by the Healthy Living Agency. And so on. There could be dozens of brands and dozens of agencies. How is a consumer supposed to know which are trustworthy and which aren’t? Which are genuine are which are just propaganda? As I keep repeating, they don’t have the time to investigate them all.

              1. My point is your idea that government regulation saves the consumer time is an illusion engendered by your assumption that government regulation is effective and does what you think it is intended to do. Do you think that Slovakian regulations and laws are good enough to ensure that an item that was made in China or India and sold locally wasn’t made in a sweatshop that paid less than Slovakia’s minimum wage? I use Slovakia here because I saw the blog title that says you had moved to there. If not, substitute your current nation’s laws and regulations for Slovakia’s.

                And as I said before, private certification is only useful if the consumer believes an agency is trustworthy. Businesses have a desire to build up a reputation and trustworthiness to their consumers, and that’s even more true with private certification agencies. It’s their job to show to consumers that they are trustworthy, and a successful agency can’t afford to just sti back and assume that customers will do the necessary research. How will they overcome that? I don’t know. Advertising, accessibility to the public, free information by mail or the internet, or whatever. In addition to news media reports and consumer advocacy groups. How did Consumer Reports and Underwriter’s Laboratory do it?

                As I’ve already said, you too easily discount the various possible sources of information that consumers have readily available to them. You also discount the effects of time and experience. Information and experience accumulates over time, just as a business’ reputation does, and especially when you multiply that by the number of consumers there are, a vast amount of information that is actually available to consumers.

                Last, not all consumer goods and services are equally important, or equally in need of investigation. If you’re unhappy with a package of bacon, you’ll know to not buy that type or brand the next time you go the store. You’ve said that you wouldn’t remember, but seriously, if it was really bad, you’d remember. If enough people don’t buy that brand of bacon, the company either improves it or stops selling it.

                On the other hand, if it wasn’t bad, then you probably don’t need to worry about doing more bacon research. What you bought was good enough, even if it wasn’t your best possible choice. A package of bacon isn’t expensive enough to deserve too much investigation. However, if you’re buying a big ticket item like a car, or a refrigerator, then spending a little more time on research is justified by the expense to ensure that you’re making a good choice.

                To repeat myself, you’re deliberately undercutting readily available sources of private information that make consumer decisions easier, while assuming that government laws and regulations are effective at doing what they are allegedly intended to do. If you don’t research the effectiveness of government regulation, then it can be nothing but an unjustified assumption. This is true even if we assume an honest and well-intentioned government and government officials, which in itself may be an unwarranted assumption. A free market is no utopia, true, but then neither is a government-regulated society. It’s no argument to merely assume that one is better than the other without justifiable reasons.

  5. I fail to see how government regulation makes things “easier” for consumers, except of course that it often removes valid choices and opportunities for consumers. Furthermore, your example about the bacon is flawed, because you openly admit that under *current regulations*, there are 40 different kinds of bacon. In other words, how did regulations help simplify your bacon decision? How do you know for sure that your bacon decision would be more complicated, not less complicated, without the regulations? Is that something we’re supposed to assume is “self-evident”? Or do you have some kind of proof?

    Also, You act like you have to make this same decision every time you go to the store to buy bacon. Really? Every time you go to the store, it’s a whole new ballgame? In reality, it’s not incumbent upon you to try out every type and brand of bacon and decide which is best for you. You act as if someone doesn’t do this every time, it’s proof that a free market can’t possibly work as descibed. But markets are processes over time. What one consumer decides one time is insignificant to the overall market compared to what all consumers decide over a period of time.
    This is important because consumers *don’t* have perfect information. Asymmetrical information is actually one of the reasons markets and division of labor work, so don’t be misled by overly-simplistic descriptions of markets and market processes. If you do, then you’re making a straw man argument.

    1. Did you actually read my post? Most of your questions were answered already.

      As I clearly stated in several paragraphs, the current decision making process is complicated enough and if we went for an anarchist-capitalist system, this would only make things worse. So we would have even more factors to take into account such as environmental impact, labour conditions, health risks etc. Again, I explained this in the post already, so I’m just repeating myself.

      1. I re-read your article just to make sure I didn’t miss anything. Yes, you’re right that no consumer will take the time to scientifically test 40 different kinds of bacon. But Consumer Reports, for example, does just that kind of thing. And that’s only one way people might discover which brands are better than others. You downplay the value of information that could come from other sources or from the consumers’ own experience.

        You freely admit that your current bacon choices exist under a regulatory regime. But then you ask us to “imagine” what one’s choices would be like without government regulations. That is, to assume that it would be worse without government interference. Besides already existing sources of information about products and brands, have you never heard private certification? Or how products and services can be regulated without a ccoercive government?

        The market exists to provide goods and services that people want. If people want to know more information about the goods and services that are available to them, that’s a market opportunity for someone, or several someones, to provide that information to users. Certification agencies, news media, consumer advocacy groups, credit reporting agencies, the stock market, even insurance companies can play a role in providing valuable information about products and services. All so that the individual consumer doesn’t have to spend a lot of time doing his own research.

        Alternately, I could ask how do you *know* that government regulation does what you think it does? How do you know that it protects you from unsafe goods and services, or assures that no racism or child labor is involved in the production of goods and services? Is this another assumption on your part? Or have you taken the time to do extensive research into government regulation and its consequences? How do you know that we are better off with government regulation than without it?

        These are the kinds of questions your article didn’t answer. Way too many assumptions that we’re supposed to take as “self-evident”, or on faith, without any proof.

        1. Yes Consumer Reports exist, but how many people read them? Plus without government regulation there would probably be competition between several consumer reporting agencies, how is a consumer supposed to know which is most trustworthy? Do they have to read all the reports before making a decision?

          Yes private certification could exist, but how does a consumer know which one to trust? All it does is add even more factors for a consumer to consider and sort before making a decision. Again consumers wouldn’t have enough time to properly consider all the options.

          1. You didn’t respond to the entire argument. If consumers don’t have enough time to rationally consider all options, then they don’t have the time to verify and research government assurances and regulations, either. You’re simply making a faulty assumption that government and its agents are neutral and trustworthy. Have you ever heard of Public Choice theory? Government and its agents are biased and self-interested, although in different ways than private businesses are.

            There are no guarantees in life, but with the market, you have choices and the opportunities to find out more. With government, the organization that has the legal authority to initiate force against people, you often have little or no choices, regardless of how bad the consequences might be. I would argue that coercive regulations and policies often have unintended consequences that make consumers worse off, not better.

            1. This post is specifically about the fact that consumers do not have the time to make rational decisions and ensure the efficient of the free market. If you want to talk about government coercion, I have discussed it elsewhere.

              https://whistlinginthewind.org/2014/09/14/both-the-state-and-the-market-are-based-on-coercion/

              https://whistlinginthewind.org/2014/03/22/why-taxation-is-not-theft/

              https://whistlinginthewind.org/2014/06/14/a-thought-about-property-without-the-state/

              1. Maybe I’m not making myself clear. My point is simply because there is government legislation and regulation, it doesn’t *really* relieve the consumer from having to do research. If anything, it’s probably harder to research government laws and their consequences than it is to just simply research the concerned product or company. To not research the regulations and their consequences is to simply ignore how it is impacting consumer decisions. You’re just assuming that government regulation makes the consumer decision easier. You assume that government regulation works as intended without doing the research necessary to know if it is, or if there are unintended consequences of the regulations.

                Thanks for the links. Are you *sure* you want me to read them? 😉

  6. Nice.

    The theory of perfectly informed and rational consumer is just that, theory. Very rarely exists in reality. People simply don’t have time to become subject matter experts for every decision.

    Ranking provides a way to correct for this somewhat. The hive mind becomes the expert, the feedback loop of performance and accountability informing individual decisions.

    This is what makes Google, eBay and Amazon such beautiful marketplaces in my mind. Information about quality provides balance to the otherwise uninformed (unregulated) race to the bottom on price.

  7. I run into this a lot. People who have a great distrust of private businesses and have great faith, that’s the best word for it, in government efficacy and trustworthiness. This really makes no sense if you think about it. In the interests of long-term profits, businesses have strong incentives to satisfy consumer desires, and not to harm or cheat their customers. Because quite simply, without customers, not only are there no profits, but there is no business. A good reputation is a valuable commodity to a business.

    Government, on the other hand, is the organization that exists on coercion, and grants to itself the legal authority to initiate force against people. They steal from people in the form of taxes, create self-serving legislation in support of special interests, and quite literally have the power of life and death over people.

    Exactly what is the incentive for government and its agents to be trustworthy and reputable? You might be able to vote out individual politicians, but you can’t vote on bureaucracies, and government doesn’t rely on your goodwill to exist. If anything, it would seem that government and its power should be considered more dangerous than businesses, who have to rely on persuasion to maintain their customers. Sure, a government can be overthrown, but it takes a lot of angry people engaging in violent behavior to do so. Why do people have so much trust in an organization that has so little accountability to the people it rules over?

    1. I was really hoping for an answer. No response might mean you simply haven’t had time to provide a response, or it might mean you don’t have a response. Let me concede a couple of things, first. Yes, it’s absurd nonsense to assume that consumers are perfectly rational and perfectly informed. That’s an obvious flaw in classical economics, though not so much in modern economics. And no, a free market won’t be a utopia; problems will still occur.

      But I do argue that a free market will be better than a government-regulated market, because it will offer more opportunities for people to solve problems, instead of a government one-solution-fits-all coercive policy. If people are concerned about the goods and services they buy, the market will provide not one, but probably several different solutions on how to privately regulate goods and services, and also provide more information, from a variety of sources, so that consumers can be better informed when deciding which goods and services to buy. I’ve already suggested some examples in a previous post. I can go into more detail if you want.

      Alternatively, my question for you is simple. Why is government regulation supposed to be better than a free market? You’ve already admitted that government is not magic, and its agents have no special powers or abilities that other people don’t have. Therefore, what is the logical reason that government regulation supposedly works better than private options? Why would you consider a government health inspector to be more trustworthy, than a private, third-party health inspector? I really want to know what the argument is.

      I can try to anticipate your answer, although only you can tell me how right my guess is. What makes government different from private businesses is that it has the legal authority to initiate force against people, it isn’t profit-oriented, and it doesn’t have to rely upon persuading consumers to be its customers in order to continue existing.

      You might think these are good things, because it means the government can merely force businesses to comply with its wishes, under threat of penalties, fines, jail, or even worse. But as I’ve already pointed out, politicians and bureaucrats have their own biases and self-interests; regardless of what they claim, it’s usually the case that the government’s wishes are not the same as what is in the consumers’ best interest.

      Even if, by some chance, they do have the consumers’ best interests at heart, because they’re outside of the market and don’t face market incentives, they may not truly understand what the consumers’ best interests really are. Even an honest politician can be mistaken about what’s best for people.

      But the government solution is a coercive law or policy of some kind. Laws by themselves don’t solve the problem. People continue to murder, rob, and rape in spite of those things being illegal. Laws merely give government the authority to act when they’re broken; laws have to be enforced. And the enforcement of laws not only takes resources, usually from taxes, but often have unintended consquences. Marijuana is against the law? People will turn to another drug, instead. There’s usually a few ways to work around any particular law, and people always seem to find them.

      So my other related question is how effective are laws at achieving their alleged purpose? And effective or not, how can we be sure that the results are actually beneficial, and don’t make things worse? A current example, in the U.S. at least, would be the Affordable Health Care Act, aka ObamaCare. I’d say this legislation has made health insurance in the U.S. much worse than it was before. Not only has it not achieve its goals, it also has negative unintended consequences, and has made health insurance worse for consumers, giving them fewer options than they had before. I suspect that’s not the kind of “simplification” you were talking about in your post, or at least, it’s not the desired kind of simplification.

      No, I’d argue that government’s legal authority to engage in coercive activity is a reason to distrust government actions, not to trust them. The electoral process doesn’t really give the citizens much in the way of government accountability (and I can go into that in more detail, too, if you want).

      So are there any other logical reasons for trusting government and its agents? Or do you want to try to argue that government’s coercive powers are in fact the reason to trust them? I can’t argue against an argument that’s never given.

      1. “I was really hoping for an answer. No response might mean you simply haven’t had time to provide a response, or it might mean you don’t have a response.”

        You waited less than a day for a response and then conclude this might be because I have no answer? I don’t sit at a computer all day waiting for comments.

        “If people are concerned about the goods and services they buy, the market will provide not one, but probably several different solutions on how to privately regulate goods and services, and also provide more information, from a variety of sources, so that consumers can be better informed when deciding which goods and services to buy.”

        You keep making the same point and keep missing mine. Yes there will be more options in a libertarian world, but the same amount of time. There will be private agencies who provide information (at a price of course) but consumers don’t have any extra time to shift through them all. This is the paradox of choice where more choice isn’t beneficial as we don’t have the time to process it all. Instead people often just go for the default.

        “Why is government regulation supposed to be better than a free market?”

        As I explained in the post, it provides a standard by which all companies obey. So for example by mandating that none of the businesses use child labour, this removes this as a factor that must be considered therefore making the decision making process easier. This way firms have to compete by providing a better product and/or at a better price instead of using child labour to undercut each other. You say the market or private agencies could do this, but consumers don’t have full information about whether a business is using child labour nor the time to research it.

        1. You keep missing my point. Just because government has laws and regulations doesn’t mean that you can assume that they work as intended. Sure, laws say that it is illegal to use child labor, but how can you be sure that none of the products you buy *aren’t* produced by child labor? Simply saying that government prohibits it doesn’t guarantee that it isn’t happening.

    2. I find people who have little faith in government have huge faith in the private market. The government can do nothing right and the market can do nothing wrong. Yet I’m blinded by faith.

      Businesses have an incentive to serve their customers but this is nowhere near as strong as you suggest. In fact most major multinationals are deeply unpopular even among their own customers. As I discussed in this post, people don’t have the time to judge everything a business does and find the one that serves them best. So instead they make do with businesses even if they dislike them.

      You clearly view government as an evil tyranny that exploits people and you would probably prefer a world dominated by private coercion where corporations had the power of life and death over people. I wouldn’t.

      Governments want to get re-elected. This isn’t the most effective control but it is as strong as market incentives. Maybe your government is unresponsive, but that doesn’t mean they all are.

      1. ‘Businesses have an incentive to serve their customers but this is nowhere near as strong as you suggest.”
        “Governments want to get re-elected. This isn’t the most effective control but it is as strong as market incentives.”

        Show me a business that doesn’t need customers. If I’m unhappy with a particular brand, store, or company, I can switch to another one whenever I want to. I don’t have to wait for an election, and I don’t need a majority of the population to agree with my decision. I’d say that’s a pretty strong incentive to serve fickle customers willing to change at the drop of a hat if business messes up.

        On the other hand, you can only vote for elected officials, not on bureaucrats and their agencies, and not on government itself. And what are you getting when you vote on a political candidate? A candidate might support national health care, or seek to improve the public schools, for example, but unless a lot of research is done, neither he nor the voters really know how much his promises might end up costing. And that’s assuming he keeps his promise and doesn’t change his mind or run into difficult political obstacles once in office. IF he wins. Your vote counts for little unless a majority of the other voters agree with you. And even if the electoral process is honest and fair, any candidate represents a bundle of views on a variety of issues. You may not agree with a candidate on all of their issues, or even most of their issues, so voting for or against any particular candidate doesn’t send a very clear message of the voters’ desires.

        All of that goes to show that the political incentives for serving the citizens aren’t very strong at all. And that’s without considering special interests and corruption. A politician needs voters, but he doesn’t have to deliver very much because he can invoke plausible deniability (the other political party was against me, for example), and he doesn’t have to be too picky about how he gets his votes. People don’t have time to thoroughly investigate candidates, their stand on all the issues, their voting record, and their political funding. They vote for the candidate of their party, or for the one with the best yard signs, the one with the best smile, or some other random way. You’d think government would do something to make it *easier* for the voters, and they do, sort of, but it relies heavily on voter ignorance, not on creating informed voters.

  8. There are a lot of comments on this piece along the lines of ‘if consumers are so stupid, how can government do any better?’ I assume it has been linked on libertarian Reddit or some such.

    First, arguing that consumers have limited information does not make them stupid. We all act based on limited information most of the time, since most of us don’t have the time, resources or inclination to research e.g. whether or not our food is toxic. Governments, however, do. They can hire experts who can make it their jobs to investigate a particular question if this question requires time and expertise.

    Second, there is no reason that corporations will always do what is best for individual customers. They make trade-offs: something might be bad for some customers but fixing it would cost more than just taking whichever loss of custom/lawsuits they face. Ford did something like this with their into (?) car, where they knew it would explode sometimes but it would have cost too much to fix.

    There’s also the matter that – due to limited information – people will simply not know whether or not what they’re getting is quite right. Even if they do, researching and switching between products, particularly ones you buy everyday, may simply not be worth the time and effort just to correct a minor inconvenience. In some cases this effect is quite pronounced: just look at Microsoft for christ’s sake!

    Most important, though, is the how poisonous this government vs. business framing is. I rarely see (minarchist) libertarians say things like ‘how can governments enforce contracts? How can they know exactly how to settle disputes better than individuals?’ The question is obviously nonsensical. The point is not that government somehow knows better but that it is well-placed to be a legitimate authority for the laws that society chooses to enforce.

    In fact, so many contracts are implicit that contract law (along with property law) is one of the most complicated parts of modern legal structures. You might say that people who buy food enter an implicit contract with the shop: that it will be what it seems, won’t kill them, etc. Many regulations are just making sure these implicit contracts are being enforced, same as with any other contract. It’s less costly, time-intensive and intrusive to do this at the firm level, before the product is sold, than to try to fix every specific instance.

    1. I appreciate your comments, but I’m afraid that they don’t really answer my questions or concerns. And nobody actually said it was about the stupidity of consumers. In fact, I would be very surprised if anyone is saying that it’s *not* ridiculous to assume that individual consumers should put in the time and effort to research all of their available consumer goods and services.

      All I really want is an actual argument, other than the assumptive “because government”, as to why government regulation is supposed to be so beneficial and trustworthy, whereas private, independent, third-party research, such as that done by Consumer Reports or Undewriter’s Laboratory, are supposed to be considered less trustworthy and more suspect.

      There have been plenty of recalls, frauds, accidents, and other such incidents with consumer goods and services under government regulation. The only way to ‘save time’ and not do the research on goods and services is to stick your head in the sand and ignore historical reality. Do people *really* think that government and its agents are impartial and unbiased? Why?

      On the other hand, the market has already provided several ways to privately regulate goods and services (again, I’d be glad to expand on this, if desired), as well as to make more information available to consumers, and these types of non-coercive regulation and consumer information would undoubtedly increase if people rationally had less faith in government regulation.

      In short, I think the original blog post mistakenly assumes without any real argument that government regulation is good, and a free market without regulation is chaos. Give me an actual argument, not an assumption.

    2. I don’t follow reddit, and I’m not a libertarian. And you don’t seem to have read any of the comments above. Your second paragraph completely misses my point, and your third paragraph does not respond to my Flint water crisis example, and is easily subject to its critique.

      “In some cases this effect is quite pronounced: just look at Microsoft for christ’s sake!”

      -Yup. How do you propose to fix that? In real life, TAILS, the most privacy and security-conscious operating system out there, receives minimal, if any, funding from any government and has never been endorsed by any government.

      “The question is obviously nonsensical. The point is not that government somehow knows better but that it is well-placed to be a legitimate authority for the laws that society chooses to enforce.”

      -OK, now this has the seeds of a good argument. But it needs to be expanded greatly before it can have any substantial convincing power.

      I agree with you on your last paragraph, though I’m wondering whether outsourcing the job of finding fraud might be more efficient than letting the government do it directly. Regulatory authorities seem to be generally quite inactive, especially at the state level. Privatization can lead to rent-seeking or to greater efficiency. Market design is one of the big areas economists are good at.

    3. “Ford did something like this with their into (?) car, where they knew it would explode sometimes but it would have cost too much to fix. ”

      I think you meant the Ford Pinto. That particular case seems to be not a good example of what you’re talking about. Wikipedia has more info on the controversy: “The Pinto’s legacy was affected by media controversy and legal cases surrounding its fuel tank safety, a recall of the car in 1978, and a later study examining incident data, concluding the Pinto was as safe as, or safer than, other cars in its class.”
      More details here: https://en.wikipedia.org/wiki/Ford_Pinto#Fuel_tank_controversy

    4. After reading several different sites about the Ford Pinto controversy, it occurs to me that it really supports the free market argument more than it supports the government regulation argument. Mother Jones published an article that characterized the Ford Pinto as excessively dangerous, although the reality was that it was no more dangerous than many other cars on the road at the time,and well within government-regulated safety standards. But the myth of its danger led to bad publicity and loss of sales for Ford, which led to Ford reacting and to changing their policy so that they started making their cars *safer* than government regulations demanded.

      So thanks for bringing this to my attention! 😉

  9. I just want to say I’m really encouraged by the people standing up against this inane “please tell me what to do, I can’t function in the real world, capitalism gives me too many choices and I’m too dumb for choices” rant.

    Thank you to everyone standing up for reason and for freedom.

    1. It’s not just that. I’ve tried to point out how market solutions can effectively make consumer decisions easier. Alternatively, it seems to be an unjustified assumption that government is always or even usually beneficial and efficacious.

  10. No individual buyer is perfectly informed, yes, but in the limit the average buyer is perfectly informed. Here lies the fundamental source of error in your reasoning.

    Each buyer has a smaller or larger bit of discriminative information and a random error. However, random errors cancel itself out. So you get a feedback loop where pure information propagates through social-economic mechanisms. The end result of this optimization process is a decision as perfect as computationally possible.

    So what the government regulations actually do is decrease standard deviation at the cost of the mean. Ie. there’s less chance of a dangerous product, but the average quality is much lower. Or equivalently, the price for equivalent quality is higher.

  11. I’ll try one more time. You’re applying a double standard. On the one hand, you assume that government assurances of safety and quality can be taken at face value, without the consumer needing to do any research. On the other hand, you seem to be saying that private assurances of safety and quality can never be trusted without extensive, exhaustive, and time-consuming research on the part of the consumer.

    Not only are you applying a double standard, here, but neither standard is really justifiable. A healthy skepticism should be applied to any assurance, but only a modicum of research should be necessary to overcome this skepticism and decide how trustworthy the assurance is. The same standard for both government and private reassurances.

  12. “When I go to the supermarket, I know that the products have to meet some basic standards such as health & safety, environmental impact and working conditions.”

    It’s a simple question. How do you know that the products at the grocery store meet some basic standards? Because they’re regulated by government? How do you know what standards government regulation applies to the products? How do you know that government enforcement of the regulations are effective and compliance with the regulations is 100% or at least close to that?

    Answer: you don’t, unless you spend the time doing research and verifying what the regulations actually say, what the enforcement rate is, verify that there’s no corruption or scandal, and confirm that the companies are complying with the regulations. Government regulation doesn’t save the consumer time unless the consumer takes government assurances at face value. You don’t take private assurances at face value. So why the difference?

  13. “Government regulation doesn’t save the consumer time unless the consumer takes government assurances at face value. You don’t take private assurances at face value. So why the difference?”

    Because a gov’t agency (or, for that matter, a private one employed by gov’t) doesn’t have financial incentives to lie about the safety of third party produce. Obviously.

    1. Hey, somebody actually provided a counter-argument! Thanks, Rolfus. Unfortunately, what you say isn’t necessarily true. If it were, then regulatory capture couldn’t happen: https://en.wikipedia.org/wiki/Regulatory_capture. And all those people who complain about corporations and big businesses influencing politicians and regulations would just be wrong, misinformed, or conspiracy theorists.

      Public Choice theory recognizes, as we all should, that government agents are real, self-interested people, with their own concerns and interests that do not necessarily correspond with the interests of the public or consumers. Of course, it’s naive to assume that corruption and bribery doesn’t occur on a regular basis, to some degree. And however noble some people might try to make it to be, government subsidies and protectionist policies are patently biased and non-neutral in the economy.

      Even honest politicians and bureaucrats may not realize or may be mistaken about what is truly in the best interests of the public or consumers. They may enforce unfair standards or requirements, or simply mis-apply the standards. And since government agents are separate from the private profit motive, they don’t receive accurate feedback information on the effects of their rules and regulations. They have no effective way of determining if they are applying too much or too little regulation. And since the market changes all the time, the type and amount of ‘necessary and appropriate’ regulation changes all the time, too.

      But government regulations tend to be non-responsive to changing market conditions, and change only with political changes, such as when a legislature passes new laws, or more cynically, when politicians and bureaucrats change their interpretation or enforcement of existing regulations.

      It would be an over-reach for me to say that government agents can *never* be neutral and unbiased. All I’m saying is that we cannot automatically assume that they will be, or even that government intervention will necessarily solve some perceived market failure or problem. It behooves us to do the necessary research and try to understand exactly what any particular law or regulation does, what kind of effect it may have, how it is enforced, and how well it is enforced. No law or regulation is automatically beneficial or efficacious.

      However, given the rational ignorance of voters, nobody has time to completely understand government actions and their consequences.

  14. It doesn’t need to be “necessarily” true, just generally, which it patently is. And politicians not understanding the vicissitudes of markets is irrelevant. What matters is the guys in white coats understanding science and pathology.

    More to the point, the idea that a legislature sufficiently corrupted by corporate influence can’t be trusted *either* isn’t a counterargument to the main thesis, but a confirmation of it. Always amusing to see market fundamentalists score this own goal.

    1. I’m sorry, but that last point doesn’t make sense. If politicians or bureaucrats are corruptible, if regulatory capture actually occurs, then clearly that shows that you can’t assume that they’re unbiased and neutral third parties. So how would that *confirm* that government unbiased and neutral?

      If your point is that corporations and big businesses are obviously corrupt and evil, and therefore, not to be trusted, this overlooks the difference between markets and politics. The competitive market in itself provides safeguards and limits the amount of evil a business is capable of committing. The power of governments to regulate is pretty much the only way to bypass the restrictions of market competition, short of actual criminal activity, and thus makes it the obvious target for those businessmen who are intent on doing evil. This doesn’t mean that all businesses or businessmen are evil or intend evil.

      In fact, some businesses are more or less forced to have their own lobbyists with government merely because they recognize the reality that other businesses WILL try to influence government, and thus they see the need to protect themselves from this undue influence or else suffer the consequences.

      “And politicians not understanding the vicissitudes of markets is irrelevant. What matters is the guys in white coats understanding science and pathology.”

      Sure, science is more reliable and more consistent than politics in many ways. But regulations and their enforcement aren’t science but politics, regardless of what scientific experts have advised. For example, there are always some degree of food contaminants, however slight. Scientists can advise on what are safe and harmful levels of contaminants, but it still remains with the politicians to decide what level to incorporate into their laws, and to bureaucrats and law enforcement agencies to enforce that.

      Furthermore, technology places limits on how effectively businesses can reduce or remove contaminants. If it’s technologically possible to remove some particular contaminant from 10 parts per million (PPM) to 5 ppm, but it costs 3 times as much to do so, is it worth doing, even if the additional safety provided is slight? Scientists can’t weigh the economic value of the additional benefit, and politicians have little reason for doing so.

  15. Nah, I said the idea that a legislature sufficiently corrupted by corporate influence can’t be trusted *either* isn’t a counterargument to the main thesis – ie that No One Has Time For A Completely Free Market. That the legislature is thus corrupted remains an unsupported assertion. Most of what you’ve written simply demonstrates ignorance of how human consumption goods are actually regulated.

    And I’m not “overlooking” your self-regulating market argument, I just don’t accept it. Or even think it’s relevant in a world where criminal gangs are constantly trying to flog consignments of dodgy food and fake medicine.

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